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CIRCULAR No. 101/1999/TT-BTC OF AUGUST 20, 1999 GUIDING THE IMPLEMENTATION OF THE LAW ON VALUE ADDED TAX FOR LAND-ROAD TRANSPORT ACTIVITIES

Pursuant to Value Added Tax (VAT) Law No.02/1997/QH of May 10, 1997;

Pursuant to the Government�s Decree No.28/1998/ND-CP of May 11, 1998 detailing the implementation of the VAT Law and Decree No.102/1998/ND-CP of December 21, 1998 amending and supplementing a number of articles of Decree No.28/1998/ND-CP;

With a view to making the implementation of the Law on Value Added Tax suitable to the transport business services, including passenger transportation, land-road cargo transportation and taxi transport, the Ministry of Finance hereby provides further detailed guidance on VAT applicable to such activities as follows:

I. VAT APPLICATION SCOPE:

1. Subjects liable to VAT include:

- Land-road transportation services, including: passenger, cargo and taxi transportation on the Vietnamese territory.

- Other services provided by land-road transport establishments.

2. Subjects not liable to VAT:

- Service of mass transit by buses.

- Goods and passenger transportation services outside the Vietnamese territory.

3. VAT payers:

VAT payers are organizations and individuals engaged in land-road transport business, including: transport companies and units with independent cost-accounting; branches, enterprises and stations with their cost-accounting attached to the independent cost-accounting companies and units; business individuals and groups.

II. TAX CALCULATION METHOD

1. Method of VAT deduction:

VAT shall be determined according to the following formula:

Payable VAT = Output VAT - Input VAT

The output VAT shall be determined on the basis of non-VAT prices multiplied by the VAT rate(s) inscribed in added value invoices for sold goods or provided services.

The input VAT shall be determined on the basis of the VAT amounts inscribed on the added value invoices for purchase of goods and services.

Due to the land-road transportation service�s particularity that many units apply the mode of contracting transport means to their direct users (vehicle drivers or sections attached to such units), the VAT calculation prices and the output VAT, the input VAT shall be deducted in the following specific cases, as follows:

1.1. For transport units that directly sign transportation contracts with customers: the output VAT shall be based on the VAT calculation prices and the tax rates. The tax calculation prices being those not yet added with VAT shall be calculated on the basis of the prices actually paid under the transportation contracts between the companies and their customers. In cases where the prices to be paid by the goods owners to the transport units are those already added with VAT, the prices without VAT shall be determined as follows:

Price inscribed in the contract with customer

Tax calculation price = ----------------------------------------------------------

1 + Tax rate

In cases where a transportation service is provided outside the Vietnamese territory with enough legal grounds for the separation of such service, the transport unit shall issue to the goods owner 2 added value invoices: one inscribing the freight amount collected for the international transportation service (transportation outside the Vietnamese territory), but given that this transportation service is not liable to VAT, the lines for VAT rate and amount on such invoice shall be crossed out, and another inscribing the domestic freight amount and the output VAT. To be issued the added value invoices inscribing the international freight rate, the goods owner must meet the following conditions:

- Having a transport contract which clearly states the departure place being a Vietnamese border-gate, and the destination place being a foreign province or city.

- Having an export goods declaration, in cases where the transport unit has export goods, or a copy of the goods owner�s export goods declaration in conformity with the transport contract signed with the goods owner.

For the input VAT to be deducted for determination of the payable VAT amount:

Amounts directly paid by the transport unit shall be evidenced by the input added value invoices, those paid by the transport means drivers shall be evidenced by the input added value invoices submitted by drivers and the spending norms in proportion to the transport turnovers. Such input spending norms shall be publicized and assigned to the drivers by the enterprise director (or the managing board) depending on the particular characteristics of each transport means.

1.2. In case of the package assignment of total turnover in passenger and/or cargo transportation whereby the revenue package assignment mode is to assign a total turnover in a certain package and the expense package assignment mode implies that the transport unit shall directly make the expenses and the package assignee�s expenses shall be calculated according to certain norms, the VAT calculation prices shall, in principle, be based on the assigned total turnover. The transport unit shall issue added value invoices to goods owners if so requested by the latter. At the end of each month, if the number of invoices issued to goods owners is not up to the assigned level, the transport unit shall issue one more added value invoice to the package assignee representing the deficit amount for the determination of its output VAT. In cases where the money amount on the invoice issued to the goods owner is larger than the assigned level, the transport unit�s turnover and output VAT shall be totally based on the invoice already issued to the goods owner.

For the input VAT to be deducted for determination of payable VAT amount: Expenses directly paid by the transport unit shall be evidenced by input added value invoices, while the assignees� expenses shall be evidenced by input added value invoices submitted by such assignees and based on the allowable expense limit (for example: the deductible fuel expenses shall be evidenced by added value invoice for fuel purchase and based on the fuel consumption norm in proportion to the assigned turnover). Such allowable expense limit shall be assigned by the enterprise director (or the managing board) to each driver on the basis of his/her transport means� particular characteristics and shall be publicized upon the package assignment to drivers.

For example: Transport Company A assigns driver B a turnover package of 5 million VND that must be remitted to the company every month (such package of 5 million VND shall be subject to VAT). All expenses for driver B shall be directly made by the company. At the end of every month, driver B shall fully remit 5 million VND to the company. Assuming that the fuel consumption norm for 100 km is 20 liters of petrol and the ordinary transport freight is 2,000 VND/km. To generate the above-said assigned turnover, driver B shall have to drive his/her car on the following minimum distance:

5,000,000VND : 2,000 VND/km = 2,500 km

- The minimum fuel volume to be used for the car shall be:

(2,500 km : 100 km) x 20 liters = 500 liters.

- The petrol purchase price without VAT is 4,000 VND/liter

- The VAT rate applicable to petrol is 5%.

So, the fuel volume purchased by Company A which is allowed to be included with the input VAT to be deducted from the above-said turnover amount of 5 million dong must be evidenced by input added value invoices for the fuel purchase, and at the same time the fuel volume for deduction must not exceed that inscribed on the corresponding invoices for the purchase of 500 liters of petrol. The amount to be correspondingly paid shall be: 500 liters x 4,000 VND/liter x 5% = 100,000 VND.

In cases where in a month the driver has found transport hiring customer(s), earned a turnover larger than the assigned level and required added value invoices therefor, assuming that besides the assigned turnover of 5 million VND package for which added value invoice has been written, there has been another turnover amount of 2 million VND for which added value invoice is also required, transport company A shall issue added value invoices and the month�s turnover of driver B shall be 7 billion VND.

1.3. In case of package assignment whereby the assignee remits a turnover package to his/her company and pay by him/herself expenses for fuel, repair, wage,... with the assignment mode clearly stating: the assigned turnover package, the turnover portion to be enjoyed by the assignee and that to be remitted to his/her company, the general principle for output VAT calculation shall be: The company calculates the output VAT on the basis of the assigned turnover remitted by the assignee, who is liable to pay VAT by direct method on the basis of the assigned turnover portion he/she is entitled to enjoy.

The input VAT shall be calculated only for the expenses directly paid by the company, but shall not be deducted for the assignee.

Where a goods owner requests the added value invoice, the driver shall be allowed to hand over an internal transport bill to certify the goods volume already transported. Such a bill shall be sent to the company�s head office for the issue of an added value invoice.

For example: Transport unit A assigns driver B a monthly turnover package that breaks down as follows:

- Monthly total turnover: 20,000,000VND

- Portion to be enjoyed by driver: 18,000,000 VND

- Portion to be remitted to company: 2,000,000 VND

So, transport unit A shall have to declare and pay VAT by the deduction method, the prices for calculation of output VAT of the transport unit shall be the turnover of 2,000,000 dong remitted by the driver. Driver B shall be liable to pay VAT by the direct method and driver B�s price for VAT calculation by direct method shall be 18,000,000 dong.

1.4. For taxi transportation: Despite the taxi transportation�s advantage that the freight and/or fare can be managed according to meters installed on the taxi, the transport units usually prefer to assign a certain percentage (%) on the freight and/or fare amount actually collected according to the meters to be enjoyed by drivers, who shall take care of the fuel expenses and wages by themselves. The output VAT shall be determined on the basis of the whole amount of freight and/or fare collected according to the taximeters (not the assigned amount remitted by the drivers). At the end of each month, the amount actually collected according to meters and declared on the company�s taxi operation orders by the drivers shall serve as basis for determination of actual transport turnover, which shall subsequently serve as basis for determination of output VAT for each driver. Each month, the transport unit shall have to make a detailed list of its drivers to serve as basis for determination of its total output VAT in the month.

In the course of transportation, drivers shall not issue added value invoices directly to their customers, but internal tickets. Customers who need added value invoices may send such internal transport tickets to the company�s head office to get added value invoices. Each added value invoice may be issued to a customer for one or many internal tickets. In cases where a customer requests added value invoices for the previous month�s internal tickets, the transport unit shall issue added value invoices to such customer and clearly inscribe a reduction on the list of the month when such added value invoices are issued.

The input VAT shall be based on the input added value invoices directly issued by the company, while the fuel volume purchased by drivers shall be based on the allowable expense limit. Such allowable expense limit shall be assigned by the enterprise director (or the managing board) to each driver on the basis of the particular characteristics of the means assigned to him/her and shall be publicized upon the package assignment to drivers

Example 1: A taxi driver earns in January a total transport turnover of 5,500,000 dong from his/her customers according to the meter on his/her taxi. He/she shall have to make a list assuming that such turnover is collected from 50 customers for a transport distance of 5,000 km recorded in the meter (including both transport distances with and without passengers).

- Regarding the issue of invoices for determination of output VAT:

At the end of January, 25 passengers request added value invoices, the transport unit shall base itself on the list of turnover amounts collected by its driver to issue 25 added value invoices to 25 passengers (for example: a turnover of 3,000,000 VND, and VAT on such invoice is 300,000 VND). The remaining turnover amount of 2,000,000 VND shall be listed by the unit for the determination of an output VAT of 200,000 VND, so the total output VAT of the transport unit in the month shall be 500,000 dong. In cases where in February a passenger who was transported by taxi in January (among those passengers whose fare and/or freight made up the total turnover amount of 2,000,000 dong, for which the transport unit has drawn the list for determination of its January output VAT) requests an added value invoice, the transport unit shall issue the added value invoice to such passenger and clearly record this reduction in its February list.

- Regarding the determination of deductible input VAT:

Assuming that the petrol consumption norm for 100 km is 7 liters. The input petrol volume calculated for determination of the transport unit�s input VAT shall be based on the added value invoices for petrol purchase, but the maximum volume to be deducted shall be:

5,000 km

----------- x 7 liters = 350 liters

100 km

The petrol purchase price on the invoices (without VAT) is 4,000 VND/liter, the VAT rate applicable to petrol is 5%, so the total input VAT amount for such petrol volume shall be 350 liters x 4,000 VND/liter x 5% = 70,000 VND.

1.5. In cases where the transport unit acts as a transport agent (its turnover includes amounts it collects or pays on behalf of goods owners), the non-VAT price shall be the total of amounts collected from customers which shall serve as basis for the direct issuance of invoices by the transport unit to its customers (including amounts collected on the customers� behalf) and determination of such transport unit�s output VAT.

The input VAT of such transport unit shall be based on its input added value invoices, those submitted by the drivers which shall be deducted according to the above-said general principle, and input VAT vouchers of amounts paid on behalf of the customers.

1.6 For transport cooperatives: Transport cooperatives are liable to pay VAT by the deduction method, while the cooperative members are liable to pay VAT by the direct method. Due to particular characteristics of transport cooperatives, the output VAT, input VAT and deductible input VAT shall be calculated as follows:

a/ In cases where the transport cooperative directly signs a transportation contract and subsequently organizes its members to take part in the transport activities, and all expenses for such transport activities are directly paid by the cooperative, the input VAT shall be determined on the basis of all amounts collected from its customers.

Deductible input VAT for determination of the cooperative�s payable VAT amount shall be based on the above-said general principles:

For example: Transport cooperative A signs a transportation contract with customer B, with a total turnover without VAT of 10,000,000 VND. Cooperative A organizes its members to carry out the transportation. The output VAT of the transport cooperative shall be 10,000,000 VND x 10% = 1,000,000 VND and the cooperative shall issue an added value invoice to customer B on the basis of the tax calculation price and the above-said output VAT. The deductible input VAT shall be based on the input added value invoices of the cooperative and cooperative members directly engaged in the transportation (for petrol, oil, water, telephone,...). Expenses which are variable depending on the cooperative members� turnovers such as that for fuels,... must be based on the fuel consumption norm publicized by the cooperative�s management board within the entire cooperative on the basis of particular characteristics of each type of transport means.

b/ Any cooperative that provides service of recommending customers to its members shall enjoy only a commission remitted by its members. Such cooperative shall pay VAT on the basis of its turnover being commissions remitted by its members.

For example: Transport cooperative A has a customer who hires the transportation of a goods lot, with a total payment value of 10,000,000 VND. The cooperative does not directly sign a contract therefor, but assigns 3 cooperative members B, C and D with transport means to directly conduct transactions with such customer, and subsequently collect from such cooperative members a commission of 1,000,000 VND. In this case, cooperative A shall be the VAT payer by the deduction method, with the VAT calculation price on the added value invoices being 1,000,000 VND; and the added value invoices on such commission amount shall be issued by the cooperative to the 3 cooperative members according to the commission level remitted by each member. Cooperative A�s deductible input VAT is evidenced by its input added value invoices. Such 3 cooperative members� input invoices shall not be deducted when determining the payable VAT amount of cooperative A.

2. Method of direct payment on added value:

a/ Individuals personally engaged in transport business shall pay VAT by the direct method.

b/ In cases of package assignment as stipulated at Point 1.3, Section II above, the assigned drivers shall be liable to pay VAT by the direct method. The VAT calculation price shall be the level presumptively assigned by the transport unit to the drivers.

c/ In cases where a transport cooperative merely recommends customers to its members and enjoys a part of commissions remitted by such members, the cooperative members shall be the VAT payer by the direct method on the basis of turnover they are entitled to enjoy. Cooperative members who conduct business activities on their own shall pay VAT by the direct method. If customers request invoices, the cooperative shall issue sale invoices on its members� behalf (the tax agency shall supply sale invoices, so that the cooperatives can bill invoices on their respective members� behalf).

Input VAT on vouchers for goods and/or services purchased by VAT payers by direct method shall not be deducted when determining payable VAT amount.

For example: Also according to the example at Point 1.6.b above, 3 cooperative members B, C and D shall be the VAT payers by the direct method. The turnover for VAT determination of such 3 cooperative members shall be 10,000,000 dong. If customers request invoices, transport cooperative A shall issue ordinary sale invoices to such customers on the 3 cooperative members� behalf.

III. VAT DECLARATION AND PAYMENT

1. VAT declaration and payment by units that pay tax by the deduction method:

1.1. Companies with independent cost-accounting shall declare and pay VAT at the localities where they are headquartered. If such companies or units have their branches and/or outlets with dependent cost-accounting operating in the same localities where they are headquartered, VAT shall be declared and paid concentratedly by such companies or units on their respective branches� and/or outlets� behalf, while such branches and outlets shall have to make VAT lists and send them to their parent companies or units for the general declaration and payment of VAT into the State budget.

Branches and outlets that conduct business activities outside the localities where their parent companies are headquartered shall have to declare and pay VAT by themselves in the localities where they conduct business (localities mentioned herein are understood provinces and centrally-run cities).

1.2. VAT reimbursement: Companies and units engaged in provision of services subject to VAT shall have to declare and pay VAT. If their deductible input VAT amounts are larger than the output ones and the differences therebetween are eligible for VAT reimbursement, the service business companies and units shall compile dossiers applying for tax reimbursement according to regulations, then file them to the tax agency for consideration of tax reimbursement to them.

2. VAT declaration and payment by subjects that pay tax by the direct method:

a/ Subjects that pay VAT by the direct method specified in Item a, Point 2, Section II above shall declare and pay VAT directly to the tax authority directly managing the tax collection.

b/ Subjects paying VAT by the direct method specified in Item b, Point 2, Section II above shall have to declare and pay VAT: On the general principle, transport units or cooperatives shall have to make tables listing turnover amount generated by each individual who is assigned turnover package or each cooperative member for the concentrated tax declaration and payment for the assigned individuals and cooperative members. If the assigned individuals or cooperative members fail to declare their transport turnovers not true to the actual ones, the tax authority may base itself on the actual local situation and consult the opinions of the Union of Cooperatives and provincial/municipal Communications and Public Work Services to fix the taxable turnover.

3. Regarding the invoices and vouchers: The transport units shall directly issue invoices to their customers on the case by case basis as follows: If a transport unit is liable to pay VAT by the deduction method, the added value invoices shall be issued with the VAT rate and amount lines thereon crossed out due to reason that the transport service is not subject to VAT. For subjects that pay VAT by the direct method, the ordinary sale invoices shall be issued. Passenger transportation units that use tickets instead of invoices shall have to register with tax authorities and pay tax according to the prescribed regime.

IV. ORGANIZATION OF IMPLEMENTATION

1. The Vietnam Land Road Administration, the provincial/municipal Communications and Transport Services and the provincial/municipal Tax Departments shall guide the concerned units to make the VAT declaration, calculation and payment according to this Circular�s guidance.

2. This Circular takes effect 15 days after its signing. Other contents which are not guided in this Circular shall still comply with the provisions of the Ministry of Finance�s Circular No.89/1998/TT-BTC of June 27, 1998 and Circular No.175/1998/TT-BTC of December 24, 1998. All previously issued documents guiding the implementation of VAT applicable to the concerned units which are inconsistent with this Circular shall be annulled. The concerned units shall have to promptly report problems to the Ministry of Finance for consideration and appropriate solution.

For the Minister of Finance

Vice Minister

PHAM VAN TRONG